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New Aequitas stock exchange gets green light from regulator

The recognition order for Aequitas Neo Exchange, issued by the Ontario Securities Commission on Monday, takes effect on March 1, 2015.

Canada’s newest stock market proposal got the go head from regulators, creating competition for the operators of the Toronto Stock Exchange and putting some brakes on the controversial practice of high-frequency trading.
THE CANADIAN PRESS FILE PHOTO

Canada’s newest stock market proposal got the go head from regulators, creating competition for the operators of the Toronto Stock Exchange and putting some brakes on the controversial practice of high-frequency trading.

Aequitas Innovations Inc., backed by a group of market investors and Canada’s largest bank, can begin operating by March 2015, the Ontario Securities Commission said in a recognition order issued Monday.

“I think we have an investor crisis. There’s a fundamental need for competition,” Jos Schmitt, president and chief executive officer of Aequitas, said in an interview. “We need exchanges to go back to their original purposes – bringing together issuer and investors in the most cost-effective way possible.”

The approval comes a month after the TMX Group Inc. unveiled its own plans to curb high-frequency trading abuses, which can occur when one set of investors skims off profits by quickly ducking in and out of the market at the expense of other long-term investors, such as pension and mutual fund operators.

The practise was exposed in the bestseller, Flash Boys, by Wall Street journalist Michael Lewis.

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Schmitt said Aequitas’ approach to limiting high-frequency trading is superior to the TMX Group’s.

“We’ll be using speed bumps and other ways of prioritizing all this that will seek to level the playing field again,” Schmitt said.

A spokesperson for the TMX Group declined to comment.

Aequitas plans to open its trading platform in the second half of March, 2015, and begin taking new lists in May, Schmitt said. It hopes to have 20 per cent of the market, by trading volume, within four to five years, he said.

The TMX Group had 74 per cent market share across its trading platforms, including the Toronto Venture Exchange and the Montreal Exchange.

A competing stock exchange will be better for companies that issue shares and also for investors, Schmitt said.

Stocks listed on the Toronto Stock Exchange can also trade on the Aequitas NEO Exchange much the same way large Canadian companies listed in Toronto also trade in New York.

Aequitas NEO will also provide greater transparency and more liquidity to investors, Schmitt said.

Companies looking to list their stock on an exchange will now have a choice, he said, comparing it to the U.S. where NASDAQ and the New York Stock Exchange compete for listings.

“We are thrilled to receive approval from the OSC to move forward and launch the Aequitas NEO Exchange,” Schmitt said in a statement.

“We appreciate the careful review undertaken by the OSC. We are now in a position to help promote confidence and build an exchange of the future using a bold new blueprint that puts investors, companies and their dealers first.”

Private equity platforms will follow in the second half of next year, subject to regulatory approval, he said.

The OSC approval comes after Aequitas modified its original proposal, which initially raised some concerns about introducing “differentiated access standards” for the first time, the regulator said in its decision.

Aequitas first unveiled its plans for a new Canadian stock exchange in June 2013.

That was less than a year after Maple Group, a cluster of rival banks, pension and mutual funds, made a successful takeover bid for TMX Group. Critics feared the new ownership structure meant the Toronto stock exchange would be more focused on fees and profits than on meeting users’ needs.

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With files from Star wire services

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